Digital transformation spending to soar past $1trn in 2018
Worldwide spending on the technologies and services that enable the digital transformation (DX) of business practices, products, and organisations is forecast to be more than $1.1 trillion in 2018, an increase of 16.8% over the $958 billion spent in 2017.
DX spending will be led by the discrete and process manufacturing industries, which will not only spend the most on DX solutions but also set the agenda for many DX priorities, programs, and use cases.
In the newly expanded Worldwide Semiannual Digital Transformation Spending Guide, International Data Corporation (IDC) examines current and future spending levels for more than 130 DX use cases across 19 industries in eight geographic regions. The results provide new insights into where DX funding is being spent as well as what DX priorities are being pursued.
Discrete manufacturing and process manufacturing are expected to spend more than $333 billion combined on DX solutions in 2018.
This represents nearly 30% of all DX spending worldwide this year. From a technology perspective, the largest categories of spending will be applications, connectivity services, and IT services as manufacturers build out their digital platforms to compete in the digital economy.
The main objective and top spending priority of DX in both industries is smart manufacturing, which includes programs that focus on material optimisation, smart asset management, and autonomic operations.
IDC expects the two industries to invest more than $115 billion in smart manufacturing initiatives this year. Both industries will also invest heavily in innovation acceleration ($33 billion) and digital supply chain optimisation ($28 billion).
Driven in part by investments from the manufacturing industries, smart manufacturing ($161 billion) and digital supply chain optimisation ($101 billion) are the DX strategic priorities that will see the most spending in 2018.
Other strategic priorities that will receive significant funding this year include digital grid, omni-experience engagement, omnichannel commerce, and innovation acceleration.
The strategic priorities that are forecast to see the fastest spending growth over the 2016-2021 forecast period are omni-experience engagement (38.1% compound annual growth rate (CAGR)), financial and clinical risk management (31.8% CAGR), and smart construction (25.4% CAGR).
“Some of the strategic priority areas with lower levels of spending this year include building cognitive capabilities, data-driven services and benefits, operationalizing data and information, and digital trust and stewardship,” said Research Manager Craig Simpson, of IDC's Customer Insights & Analysis Group.
“This suggests that many organisations are still in the early stages of their DX journey, internally focused on improving existing processes and efficiency. As they move into the later stages of development, we expect to see these priorities, and spending, shift toward the use of digital information to further improve operations and to create new products and services.”
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.